Stanley O. Roth, Assistant Secretary for East Asian and Pacific Affairs, U.S.
Department of State, Testimony Before the House Resources Committee and the House
International Relations Committee, Subcommittee on Asia and the Pacific, "U.S. and
the Freely Associated States" Washington, DC, October 1, 1998

"U.S. and the Freely Associated States"

Mr. Chairman, thank you for the invitation to discuss one of the
United States' most unique relationships: our relationship with
the Freely Associated States (FAS). Though poorly understood and
often overlooked, U.S. ties to the three FAS -- the Federated
States of Micronesia (FSM), the Republic of the Marshall Islands
(RMI), and the Republic of Palau -- have a long history and are
an important part of our posture in the Pacific. I personally
devoted many years of my life to this issue in the mid 1980s,
when, as Staff Director of the House Asia and Pacific Affairs
Committee, I worked to get the Compacts of Free Association
legislation through Congress. This process, as you know, Mr.
Chairman, was long and arduous, in part because Congress had not
been adequately consulted from the outset of negotiations. I thus
welcome the opportunity to open a dialogue with committee members
on the state of U.S.-FAS relations and to consult with you
regarding the upcoming renegotiation of certain provisions of our
Compact with the FSM and the RMI.

My testimony today will be divided into two sections. First, I
will give a brief overview of the Compacts of Free Association,
laying out the parameters which guide these unique relationships.
Second, I will reexamine what the United States had hoped to
accomplish with these Compacts of Free Association and evaluate
our success in meeting those goals.

Compacts of Free Association

The Freely Associated States were formerly part of the Trust
Territory of Pacific Islands (TTPI), a group of islands
administered by the United States after 1947 under a UN Strategic
Mandate. In 1969, the United States entered into discussion with
representatives of the various islands on their future political
status, a process which had different outcomes for the four
island groupings in the Trust Territory.

The people of the Northern Mariana Islands opted for an
association with the United States that made them U.S. citizens.
In January 1978, the United States began administering the
Northern Mariana Islands under provisions of the negotiated and
congressionally approved Commonwealth Covenant. On November 3,
1986, the Northern Mariana Islands became a Commonwealth in
political union with the United States.

The FSM, RMI and Palau, on the other hand, chose to become
sovereign nations in free association with the United States. On
this date 16 years ago (October 1, 1982), the United States and
the FSM agreed to a Compact of Free Association, some provisions
of which will expire 15 years from the date of its entry into
force. In June 1983, we reached a similar agreement with the RMI.
These Compacts were approved and enacted into law by Congress in
January 1986, and endorsed by the UN later that year. Our Compact
with the RMI thus officially went into effect on October 21,
while that with the FSM started on November 3. The Republic of
Palau opted for a longer 50-year Compact which did not go into
effect until October 1, 1994 due to multiple delays in
ratification in Palau.

A Unique Relationship

These Compacts established unique relationships between the
United States and these former trust territories, elaborating
bilateral arrangements unprecedented in the history of U.S.
diplomatic relations. While each of the states is now sovereign
and our dealings with the FAS are no longer internal but rather
foreign policy matters, our relationship with the Freely
Associated States differs from those with other nations in
several fundamental ways: we provide the people of the FAS access
to direct services of over forty U.S. federal domestic programs
and to U.S. Government funding at a per capita rate greater than
any other foreign government; we take responsibility for the
security and defense of each of the island states in return for
denial of third-country access to the FAS for military purposes;
and we give FAS citizens the right to work and live in the United
States as nonimmigrant residents within the parameters laid out
in the Compacts.

Towards Renegotiation

We are rapidly approaching the 12th anniversary of our 15-year
provisions of our Compact with the FSM and the RMI, and so these
elements of the agreement will soon be up for renegotiation.
Under the terms of both Compacts, negotiations should open two
years before the 15th anniversary in the fall of 2001, putting us
just a year away from the start of this process. The
Administration is fully cognizant of the significance of this
upcoming exercise, and we are in the process of trying to
identify the best negotiator for the job.

As we move towards the 1999 deadline, it is important that we
reevaluate where we have come from and where we now stand with
the FAS. The United States entered into Compacts of Free
Association with these former trust territories for two basic
reasons. First, as the administrator of the UN mandated Trust
Territories, the United States was obligated, and I quote, "to
promote the development of the inhabitants of the trust territory
toward self-government or independence as may be appropriate to
the particular circumstances of the trust territory and its
peoples, and the freely expressed wishes of the peoples
concerned." In accordance with these responsibilities, the
United States moved the various island groupings toward self-
governance, and having achieved statehood, the people of the FSM,
RMI and Palau elected a relationship of free association with the
United States.

Second, in the Cold War environment of the mid-1980s, the United
States was keen to bolster its security posture in the Pacific.
For much of the post-World War II period, the United States had
had unrivaled influence in the Pacific. This position was
challenged in the mid-80s as the Soviets undertook an aggressive
campaign to increase their presence in the region, concluding a
fishing agreement with Kiribati and opening diplomatic relations
with Vanuatu. At the same time, consultations with the Filipinos
had already begun to cast doubt on the future of U.S. bases at
Subic, Clark and other facilities in the Philippines. For the
first time in almost three decades, then, our supremacy in the
Pacific appeared to be in jeopardy.

The Compacts with the FAS alleviated this problem in three ways.
First, the principle of strategic denial elaborated in the
agreements with each of the three FAS guaranteed the United
States exclusive military access to these countries and their
surrounding waterways. Second, our agreement with the RMI ensured
continued access to the Kwajalein military facility. Third, our
agreement with Palau included the right to develop a military
base should the United States need an alternative to the
Philippines. Combined, these three components of the Compacts
served to safeguard our long-term military interests in the
region.

As we move towards renegotiation, it is of course useful to
reassess both our continued interests in, and obligations to, the
FAS. First, on the strategic side. Geo-politics have changed
significantly since the mid-1980s, as the Cold War is over and
the Soviet threat is no more. Nonetheless, the FAS continue to be
of strategic significance to the United States. The thousands of
islands of which the FAS are composed cover vast stretches of
ocean and sit astride vital sea lanes. The United States has a
clear interest in keeping these sea lines of communication open.

Moreover, the FAS are located between U.S. positions in Hawaii
and Guam. U.S. defense relationships in the Asia-Pacific form an
arc from South Korea and Japan, through Thailand, the Philippines
and on to Australia. Guam is the forward military bridgehead on
U.S. ground, from which we can leap, if necessary, not only to
Asia and the Pacific but also on to the Persian Gulf -- a point
aptly demonstrated during the 1995 U.S. military action in
support of U.N. sanctions on Iraq. To protect the forward
presence in Guam and beyond, the United States has a strong
interest in maintaining friendly governments and denying
potentially hostile forces access to these sea lanes. While there
is currently no direct threat to these vital waterways, we can
not assume that this will remain the case.

As mentioned above, the RMI is also home to the U.S. Army
Kwajalein Atoll (USAKA)/Kwajalein Missile Range (KMR). According
to a DOD assessment, the USAKA/KMR is a "national asset,"
currently the only facility in the world with an arena suitable
for full-scale testing of long-range missiles. The study also
determined that Kwajalein is uniquely situated for intelligence
gathering and provides important support for our space programs.
We have, over time, invested upwards of $4 billion in this
facility, and relocating would be a difficult and costly
proposal. Our lease of the Kwajalein base expires in 2001, though
if we choose to renew, our Compact with RMI provides automatic
renewal rights for an additional 15 years.

On the obligation side of the coin, our position is more
complicated. The United States has clearly fulfilled its
responsibility under the UN Mandate to prepare these territories
for self-governance. The new states have become self-governing
and responsible for their own foreign affairs. They have
exchanged diplomatic representatives with other nations besides
the United States and have become members of international
organizations including the UN, the IMF and the World Bank, as
well as regional organizations like the South Pacific Forum, the
Pacific Community and the Asian Development Bank.

Still, while our legal obligation to the FAS can be said to have
been fulfilled, our moral obligation to the people on the ground
is ongoing. In the original Compact legislation, the United
States pledged to help each of the three FAS move toward economic
self-sufficiency. However, despite generous financial assistance
from the United States, progress toward attainment of economic
self-sufficiency has been slow. Since our Compact with Palau will
not be on the table in this round of negotiations, I will focus
my remarks on the FSM and the RMI.

For years both the FSM and the RMI seemed hopelessly dependent on
our provision of aid and services, unwilling and/or unable to
undertake the reforms necessary to transform their economies.
Recently, the Federated States of Micronesia has begun to make
headway with economic reform, working with us, the IMF and the
Asian Development Bank to restructure its economy, downsize the
national government, and privatize many governmental functions.

In accordance with IMF recommendations, the FSM Government
formulated a structural reform program which has been under
implementation since 1995. Considerable progress has been made
under the reform program in the past two years, including the
recent National Government Restructuring, which downsized the
public sector, and the new Foreign Investment Act, which
streamlined the foreign investment approval process, devolved
discretionary power to the States and created a more competitive
environment for the attraction of foreign investment. Other new
initiatives have included a reform of the tax code designed to
increase customs revenue, and financial sector reform, such as
liberalization of interest rates.

Even with these reforms, however, there is still much to be done.
Private sector development of agriculture, fisheries and tourism
is crucial for the FSM's future viability. Growth of the private
sector will require a consistent regulatory framework, reform of
the land-tenure system, continued simplification of foreign
investment policy, and further reforms to the taxation system. At
the same time, a comprehensive reform of the education system
will be essential if Micronesians are to attain the knowledge
base and skills training they need to move forward with reform.
While the Micronesians are on the right economic path, their
ability to carry through with such reforms might be undermined by
termination of our economic assistance.

The RMI is not as far along the reform path as its neighbor. A
swollen and inefficient public sector continues to swallow a
substantial percentage of the budget; debt-servicing requirements
are greatly constraining fiscal policy; and high population
growth rates, rising unemployment, and declining per capita
income are placing serious strains on the nation's social
services. The Government, meanwhile, has exhausted its financial
holdings and borrowing capacity and has not created a climate
attractive to foreign investment. There is also controversy
surrounding the RMI's management of funds established to provide
compensation for claims related to the 1946-1958 U.S. Nuclear
Testing Program, with critics contending that manipulation of the
criteria by which claimants are determined eligible for programs
supported by these funds has led to an unsustainable ballooning
of the subscriber base. The Government of the RMI, moreover, has
not released required annual audits on the fund.

Having said all that, let me stress that not all is gloomy in the
economic management of the RMI. The Marshallese have undertaken a
Public Sector Reform program in conjunction with the ADB, and
some progress has been made, including a 25% reduction in civil
service staff since January 1996, termination of subsidies to Air
Marshall Islands, and a public sector wage freeze. Other notable
initiatives have included the tariff structure rationalization
carried out in FY96 and the amalgamation of ministries which
helped minimize redundancies and reduce the range of services
provided by the government. Still, I think the record shows that
it is not yet clear whether or not the RMI government is
committed to genuine economic reform.

In short, Mr. Chairman, our provision of federal aid and services
has had only partial success in fostering economic self-
sufficiency. The question is, having set the FAS on a path of
economic reform, can we abandon them before their reforms are
finished? Terminating most or all of our assistance programs
would likely devastate these fragile economies, and historical
ties compel us to consider the impact that severance of aid
and/or services would have on the ground. That is not to say that
we must continue to provide the FAS with more funding per capita
than any other nation in the world; our obligation to U.S.
taxpayers dictates that even historical bonds must be reexamined
in light of changed global conditions and new fiscal realities.

As we move towards negotiations, then, Mr. Chairman, the Congress
and the Administration must answer a number of tough questions.
First, should the United States continue to provide financial
assistance and/or government services to the FAS? If so, how
much? For how long? And under what terms? Should aid continue
to be provided with the full faith and credit of the U.S.
Government? Or should aid be provided as an annual appropriation
as it is with U.S. Government assistance to other countries? It
goes without saying, Mr. Chairman, that any future provision of
assistance must serve to help the FSM complete its reforms and
compel the RMI to adopt and implement more wide-ranging reforms.
Past policy failures must therefore be addressed if future aid is
to improve economic performance.

Finally, Mr. Chairman, let me add one thought about our unique
financial obligations to the RMI relating to nuclear claims.
While the implementation agreement of the Compact with the RMI
constituted the full settlement of all claims, past, present and
future, related to nuclear testing, it does provide that the RMI
may submit a request for additional compensation to the Congress
under certain provisions. RMI representatives have said that
additional atolls should be considered affected by the nuclear
program, and that compensation for all the affected atolls should
be increased. I understand that the Marshallese are hard at work
preparing a case for additional compensation and we will of
course give their materials full consideration in accordance with
our legal obligations.

Before I conclude, Mr. Chairman, I would like to emphasize that I
take my obligation to consult with Congress during this process
seriously. I again thank you and the members of the committee for
the opportunity to discuss the Compacts of Free Association
today. I look forward to getting your feedback this afternoon and
to continuing this dialogue as we move towards negotiations next
year.